Question

Explain whether each of these expenses of a textile mill is a fixed cost or a variable cost, and why. (a) repairs to a leaking roof (b) cotton (c) food for the miller's cafeteria (d) night security guard (e) electricity

Answer 1

(a) repairs to a leaking roof - FIXED

(b) cotton - VARIABLE

(c) food for the miller's cafeteria - VARIABLE

(d) night security guard -FIXED

(e) electricity- VARIABLE

Step-by-step explanation:

Variable costs are those expenses that vary in proportion to the activity of the company. Fixed costs are those costs that the company must pay regardless of its level of operation, that is, produce or not produce. In this way, fixed costs and variable costs constitute the total cost.

Answer 2

Fixed costs are those costs that do not vary with the level of production. While, variable cost are those costs that change with the level of production or per unit consumption.

(a) Repairs to a leaking roof- Fixed cost as it has nothing to do with the level of production.

(b) Cotton- Variable cost as it depends on the number of units produced.

(c) Food for the miller's cafeteria- Variable as it depends on production. The more you produce the more workers you need and thus more is the food requirement.

(d) Night security guard- Fixed cost as it does not change with the number of units produced by the textile mill.

(e) Electricity- Variable cost as it depends on the units of electricity consumed. The more you produce the more electricity will be consumed.